A Louisiana appeals court has determined that Nasdaq is unable to mandate diversity on the boards of the companies that are listed on its exchange.
This ruling follows more than three years since the Securities and Exchange Commission (SEC) granted approval for Nasdaq’s initiative aimed at enhancing diversity by increasing the number of women, racial minorities, and LGBTQ individuals on corporate boards in the United States.
The proposed guidelines, which would have set a precedent for U.S. securities exchanges, intended to require that the majority of the approximately 3,000 companies on Nasdaq have at least one female board member along with one representative from a racial minority, or an individual identifying as gay, lesbian, bisexual, transgender, or queer. Furthermore, the policy would have mandated companies to reveal statistics outlining the demographic makeup of their boards.
Several conservative organizations and Republican legislators have voiced strong opposition to the plan, contending that the requirements were both arbitrary and excessively burdensome.
On Wednesday, the Fifth U.S. Circuit Court of Appeals, stationed in New Orleans, declared the proposal illegal. In their judgment, the court asserted that the SEC should not have endorsed Nasdaq’s diversity initiative.
The ruling emphasized that companies are not ethically obliged to disclose information regarding the racial, gender, and LGBTQ+ identities of their directors. Furthermore, it noted, “We are not aware of any established rule or custom of the securities trade that saddles companies with an obligation to explain why their boards of directors do not have as much racial, gender, or sexual orientation diversity as Nasdaq would prefer.”
In response, Nasdaq reaffirmed its commitment to the proposed policy, stating, “We maintain that the rule simplified and standardized disclosure requirements to the benefit of both corporates and investors. That said, we respect the Court’s decision and do not intend to seek further review.”
The Nasdaq exchange is primarily known for hosting technology companies such as Apple and Microsoft, in addition to a variety of firms in the financial, biotechnology, and industrial sectors.
The SEC also commented on the ruling, with a spokesperson saying, “We’re reviewing the decision and will determine next steps as appropriate.”
This court decision arrives at a critical moment when numerous companies are reassessing their diversity, equity, and inclusion initiatives. In October, a coalition of Democratic House members urged major U.S. corporations to maintain their diversity programs, asserting that such initiatives ensure equitable opportunities for all individuals in pursuing the American dream.
The 49 representatives, led by California’s U.S. Rep. Robert Garcia, expressed their support in a letter sent to the leaders of Fortune 1000 companies. This push came after a number of high-profile corporations announced plans to diminish or eliminate their diversity, equity, and inclusion efforts in recent months.
Several U.S. firms, including Ford, Harley-Davidson, John Deere, Lowe’s, and Molson Coors, scaled back their DEI initiatives over the summer. These changes were sparked by the U.S. Supreme Court’s decision to abolish affirmative action in higher education admissions and followed targeted actions by conservative activists against well-known American brands regarding their diversity strategies.
